NICHIRIN Business report FY2006

Business Highlights

Financial overview

in million JPY

FY2006

FY2005

Rate of Change(%)

Factors

Sales

40,997

39,468

3.9%

- Although there were few new model launches in Japan, sales increased
from the previous year, thanks to strong sales and exports of models in which the Company's products are installed.
The Company was also able to post greater operating income despite surging material prices, by improving productivity,
reducing costs, and bringing down selling prices of its products. The increase was partly due to gains from exchange
rate translation.

- On the other hand, both sales and income fell in North America in spite of the Company's efforts to boost sales,
reduce costs, improve productivity, and manufacture in-house more components used in its products. Some of the major
reasons for the drop is the declining sales of heavy-duty vehicles amid hovering oil prices, and a production cutback
by its major customer.

- Sales were favorable in China, Asia, and Europe, supported by stronger performance by Japanese automakers.

Ordinary income

1,486

1,723

(13.8%)

Strengthening the Chinese business operations
In December 2006, Nichirin Co., Ltd. decided to increase the equity stake in its subsidiary, Shanghai Nichirin Automobile
Accessories Co., Ltd. Nichirin established the subsidiary in 1996 as a joint venture with two Chinese companies, positioning
it as a hub for its production and assembly of automotive hoses. Nichirin intends to strengthen its control over Shanghai
Nichirin Automobile Accessories Co., Ltd., as the subsidiary's operations have expanded and its strategic position within
the Nichirin Group has been upgraded over the years. Nichirin will raise its stake in the subsidiary from the current
52%, to 72%. (From a press release by the company on Dec. 22)

Targets for 2007
- To enhance its production lines in response to the changing global market, and to improve profitability by having
its subsidiaries supply each other with parts and products they've each manufactured.
- To establish a global quality assurance system, and achieve topnotch and uniform quality levels worldwide.
- To improve its production structure based on the NNP (Nichirin New Production) initiative, and reduce costs by diversifying
its purchasing methods.
- To strengthen its technical development capabilities by integrating its R&D and technological functions into
the Nichirin R&D Center.

R&D

R&D Expenses

(in thousand yen)

FY2006

FY2005

FY2004

994,411

850,024

726,658

Technology Transfer (as of December 2005)

Company

Country

Content of Contract

Period of Contract

From

To

HS R&A

South Korea

Manufacturing technology for air conditioner hoses
used in automobiles

Feb.24, 2004

Feb. 23, 2007 (The contract will
be renewed automatically every three years)

Manufacturing technology for automotive brake
hoses

Nov. 3, 2004

March 4, 2007

March 5, 2007

March 4, 2010

Manufacturing technology for automotive power steering hoses

Oct. 28, 2002

Oct. 27, 2007

PT.Mitra Metal Perkasa

Indonesia

Assembling technology for automotive brake hoses

Oct. 26, 2006

Oct. 25, 2007

New Product DevelopmentR&D focus is set on the following areas; Automotive hoses
- Automotive hoses that improve the safety of vehicles such as ABS hoses and brake hoses with higher braking performance
and durability. The Company has started supplying hoses for electronic stability control systems.

Car air conditioning hoses
- Its environmentally friendly EF-Tubes, which are CO2 piping hoses, are used in some fuel cell vehicles. The Company
also supplied prototypes of the products to manufacturers of air conditioning systems inside and outside Japan. It intends
to promote sales of this highly flexible and impermeable tubes to other markets as well.

Other hoses
- The Company developed suspension system hoses to improve the stability of vehicles, and started mass-production of
hoses used in common rail systems that enhance fuel efficiency of diesel engines. It is also working on developing hoses
for the urea selective catalytic reduction (SCR) system, which is aimed at reducing NOx emissions from diesel engines.